Net income tax revenue is up for the city

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Grand Rapids city commissioners received some fairly good tax news last week as part of the city’s ongoing effort to transform itself into a sustainable municipality.

City Income Tax Administrator John Schaut told commissioners an endeavor his department entered into with its counterparts in Lansing and Flint this past spring has paid off. The three tax departments agreed to have their income-tax returns that are filed on paper scanned via technology used by JP Morgan Chase Bank.

The state of Michigan was so impressed by the partnership that it awarded the project its first Economic Vitality Incentive Program grant, for $550,000.

At the time of the project’s inception in April, Schaut told commissioners he thought the new program would cut his department’s expenses by about $45,000 in its first year. Last week, though, he reported the cost savings are closer to $200,000.

Schaut reported that of the 68,048 paper returns filed this year, 58 percent, or 39,427, were scanned while the rest were done in-house. None were scanned in 2011. E-filings also were up by 6 percent this year from last year. “We’re making the transition of moving from paper,” he said.

But perhaps more importantly for the city’s transformation process is that net revenues from the income tax are up this year by $3.3 million from last year to $56.9 million, after refunds are calculated.

Schaut said the 2012 revenue total mirrors what the city received in 2008, before the Great Recession tightened its grip on the economy. The expenditures from that revenue, which includes income-tax payments, late-filling fees and other related charges, were at the same level this year as the expenses were in 2008.

Schaut felt income was up because employers are withholding more tax revenue, meaning more people are working now than in recent years. “I think there is some positive trending in the community,” he said.

Another reason revenue is up is city residents agreed to raise their income taxes for five years in 2010, and the 2012 returns reflect the second year of that additional $9 million, which goes to police, fire and the transformation fund.

“For the year, it grew 6.4 percent,” said City CFO Scott Buhrer of the net tax revenue. He added that the city projected a growth of 4 percent for that income. “Total revenues underperformed to our estimate, but income-tax revenue exceeded our estimate,” he said. “We’ll talk more about that in September and again in November.”

Schaut said the second half of the equation is compliance, which is simply getting everyone who owes taxes to file a return. “Compliance is up,” he said.

“It’s growing, but not like it did in the 1990s,” said City Manager Greg Sundstrom of the recent rise in compliance.

The city collected nearly $2.8 million in tax assessments, penalties and interest in 2012, up from $1.9 million in 2011. City records show this year’s compliance figure is easily the most revenue collected from the process since at least 2005. Schaut said the city caught up with one individual who hadn’t paid taxes for 15 years.

“How much non-compliance is out there? There seems to be an unlimited amount,” said Schaut. “We’re chasing people who aren’t filing returns.”

Sundstrom said Schaut has been focused on improving compliance and has done a good job doing that so far.

Although the news last week was good regarding income-tax revenue and compliance, Sundstrom told commissioners the transformation process still has a way to go, especially with the voter-approved tax hike ending in 2015.

“The notion is we’re planning how to live without that additional (income-tax) revenue. We’ll update that next month,” he said. “We’re not sustainable today.”

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